T2FIT MANUFACTURERS The business, owned by Mark Fit, manufactures T-shirts - NSC Accounting - Question 2 - 2023 - Paper 2

The factory overhead costs must account for the adjustments needed:

1. Incorrect total = R 600 000
2. Adjust for omitted indirect material:
   • Indirect Material = R 7 000
3. Water and electricity cost allocation:
   • Total allocated = R 84 000
   • Check allocation:
     • Office: 15% = R 12 600
     • Selling: 25% = R 21 000
     • Factory: 60% = R 50 400
4. Insurance adjustment based on floor space:
   • Total Insurance = R 45 000 distributed by ratio =
   • Factory: 1 500 m² = 60% = R 27 000
   • Sales: 300 m² = 12% = R 5 400
   • Office: 600 m² = 28% = R 12 600

Total Factory Overhead Costs = R 600 000 - R 7 000 (Indirect Material) + R 50 400 + R 27 000 = R 570 650.

The Production Cost Statement is prepared as follows:

1. Direct Material Costs: R 888 300

2. Direct Labour Costs: [to be provided in the exam]

3. Factory Overhead Costs: R 570 650

4. Total cost of production = Direct Material Costs + Direct Labour Costs + Factory Overheads

   • Total Production Costs = R 888 300 + Direct Labour Costs + R 570 650.

5. Cost of goods finished = [to be provided in the exam].

To calculate the cost of wastage:

1. Wastage in metres = Purchases - Fabric issued to the factory

   (18 800 - 15 000) = 3 800 metres
   

2. Convert wastage in metres to cost:
   • Cost of wastage = Wastage metres x Cost per metre
   • Cost = 3 800 x R 47 = R 178 600.

1. Improve training of factory workers:

   • Regular training sessions to enhance skills can significantly reduce material wastage.

2. Implement a more rigorous stock management system:

   • Utilizing software for tracking raw materials can help minimize errors and wastage.